A: Bulls love to say how cheap Apple’s stock is. But is it really?
Shares of Apple are trading for 10.5 times the company’s earnings over the past 12 months. Apple bulls point out that the stock’s P-E is below the 15.5 P-E of the Standard & Poor’s 500.
There are some serious problems with that simplistic analysis, though. For one thing, investors are starting to factor in the fact that Apple’s growth is facing a potential major slowdown, says Walter Piecyk of BTIG. Analysts are looking for 9% growth the current fiscal year, but greater competition is threatening that rosy forecast and the company’s fat profit margins.
It’s also inaccurate to compare Apple’s P-E with the market’s. Apple is in the hardware business, known for very low P-Es, says Kim Caughey Forrest of Fort Pitt. Apple’s P-E is high relative to the hardware universe: Dell has a P-E of 9.2, and Samsung Electronics a P-E of 7.8.
And even after Apple’s fall, shares of the company are still not “cheap” as bulls profess, based on the current value of the company’s future cash flows, says NewConstructs.com. And if cash flow declines in the future, the stock will appear even pricier.
USA Today
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